There is no withholding tax required on RRIF minimum withdrawals. This does not mean the withdrawals are not taxable. The withdrawals are added to your income for the year, which may result in a tax balance owing. If you have too little tax withheld in consecutive years, you may need to start paying quarterly income tax installments to the Canada Revenue Agency or Revenu Québec.
If you take extra withdrawals beyond your minimum, withholding tax applies to only the excess, at the following rates:
10% (5% for Quebec) on amounts up to $5,000
20% (10% for Quebec) on amounts over $5,000
30% (15% for Quebec) on amounts over $15,000
For Quebec residents taking extra RRIF withdrawals, 14% provincial withholding tax applies in addition to the federal tax rates of 5%, 10% or 15%, depending on the amount of the withdrawal.
If a taxpayer is 65 or older, they can move up to 50% of their RRIF withdrawals to their spouse or common-law partner’s tax return. If the recipient spouse’s income is lower, this could result in a couple paying less combined tax. This is called pension income splitting.
RRIF withdrawals are also considered eligible pension income and qualify from age 65 onwards for the pension income amount, a small tax credit for seniors.
Income Tax Guide for Canadians
Deadlines, tax tips and more
RRIF withdrawal strategies
Withdrawals can be taken in cash or in kind. So, if the financial institution allows it, you may be able to withdraw investments without selling them and this qualifies as a RRIF withdrawal. Not selling the investment could come in handy if there are costs to selling it, or if the asset is illiquid and cannot be easily sold. To be clear, there is no tax reason not to sell the investment and withdraw cash instead, so this is purely an investment consideration.
RRIF withdrawals can be taken monthly, quarterly or even annually. A retiree can set the withdrawal schedule to their preferences and then manage their account to ensure there is sufficient cash available to fund the withdrawal.
You should consider converting your RRSP to a RRIF if you’re certain that you will be making RRIF withdrawals every year when you retire. But think twice about converting your entire account if you have variable income due to part-time work or consulting, have non-registered investments that could include sporadic capital gains, or face other circumstances that could cause your income to spike from year to year. If you want to benefit from pension income splitting and to claim the pension income amount, you can convert part of your RRSP to a RRIF. It is not all or nothing. Although uncommon, you could even convert your RRIF back to an RRSP.
